Micron Stock Continues to Rise as Investors Do Unusually Heavy MU Options Trading

Micron technology (MU) Shares are back up more than 5% today, with unusual options activity seen in a report from Barchart. Analysts continue to raise their revenue and price targets over the next two years. As a result, MU stock could still be undervalued by 18%. This article will show why.

MU is in $523.35 in midday trading, up more than 5.3% on the day. It has soared since bottoming on March 30 at $321.80. However, it could be worth up to $620 per share based on strong free cash flow (FCF) expectations.

More Barchart news

Strong free cash flow forecasts

Micron’s strong results on March 18, as well as its comments on expected demand for its AI-related memory chips, have led analysts to upgrade their revenue targets.

I talked about this in a March 22 Barchart article, as well as in an update in an April 14 article, “Analysts Raise Their Micron Estimates, Raising MU Stock Price Targets.”

Since then, revenue estimates are even higher, according to Seeking Alpha’s survey of 35 analysts:

Year ending August 2026………. $108.91 billion

Year ending August 2027………. $169.13 billion

Next 12 months (NTM)… $139.0 billion MNA revenue

In the first half of its fiscal year ended February 28, Micron’s adjusted free cash flow was 28.8% (i.e. $10.8 billion adjusted FCF / $37.5 billion revenue).

Therefore, applying this margin to our NTM revenue estimate:

$139 box x 0.288 = $40 billion adj. FCF

In other words, we can expect a dramatic increase in FCF. That could push Micron’s valuation higher.

Higher MU Price Targets

For example, using an FCF performance metric of 5.738% as I did in my last article, which is the same as multiplying your adj. FCF at 17.42 times, we can estimate the future market value of Micron.

To be conservative, let’s use a multiple of 17.5x:

$40 box x 17.5 = $700 billion commercial value

Today, Micron’s market capitalization is $590.5 billion, according to Yahoo! Finance. That implies that the target price for MU shares is 18.5% (i.e. $700 billion/$590.5 billion -1) plus:

523.35 x 1.185 = $620.17 per share

Analysts also have higher price targets. Yahoo! Finance now says the average of 42 analysts is $533.72 and the Barchart survey average price is $546.09.

The bottom line is that MU stock still looks undervalued.

Not surprisingly, there is a lot of activity in MU buying and selling options.

Unusual MU Options Trades

This can be seen in today’s Barchart Unusual Stock Options Activity Report. It shows, for example, that more than 90 times the previous number of people without money ($510) put options have been marketed with expiration on May 1.

In addition, a volume 26 times greater than that of May 1 puts on sale $525.00 negotiated strike price. This is an at-the-money (ATM) or slightly in-the-money sales contract.

Note that this provides great returns to the investor who sells these puts.

For example, the $510 put option provides a premium of $15.65, a 3.0% performance over the next 4 days (i.e. $15.65/$510). The $525.00 put play provides a 4.3% performance (i.e. $22.62/$525).

Additionally, the breakeven points for these investors are significantly lower: i.e. $510 – $15.65 = $494.35, or 5.5% below the current price.

The bottom line is that shorting these options provides investors with attractive buying points and high returns for long-term investors in MU stock.

On the date of publication, Mark R. Hake, CFA had no (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com